Just a couple of days before another crucial Eurogroup meeting on Greece, the Managing Director of the International Monetary Fund, Christine Lagarde sent a letter to all 19 eurozone finance ministers asking them to begin talks on Greek Debt Relief “immediately, or risk losing IMF participation on the Greek program.
In the letter sent on Thursday night, Lagarde expresses for one more the the IMF’s point of view that the target of 3.5% Primary Surplus in 2018 was not only impossible to reach but also “counterproductive.”
“Let there be no doubt that meeting this higher target would not only be very difficult to reach, but possibly counterproductive,” Lagarde wrote. “We do not believe that it will be possible to reach a 3.5 per cent of GDP primary surplus by relying on hiking already high taxes levied on a narrow base, cutting excessively discretionary spending, and counting one-off measures as has been proposed in recent weeks.”
“We believe that specific [economic reform] measures, debt restructuring, and financing must now be discussed contemporaneously,” she wrote. “For us to support Greece with a new IMF arrangement, it is essential that the financing and debt relief from Greece’s European partners are based on fiscal targets that are realistic because they are supported by credible measures to reach them.”
Admitting that talks about the €3.6 billion “contingency austerity measures” have become fruitless, Lagarde wrote that Athens’ counterproposal — a mechanism that would trigger across-the-board cuts — was unworkable, implying that discussions surrounding the contingency measures should be dropped.
“Unfortunately, the contingency mechanism that Greece is proposing does not include [specific economic] reforms,” she wrote. “Based on past performance, such ad hoc measures are not very credible, but they are also undesirable as they add to uncertainty and fail to resolve the underlying imbalances.”
Lagarde’s letter was obtained by Financial Times and more details you can read here.
PS I have no idea, how the German Finance Minister reacted to the letter but rumors claim that he recently cancelled his internet/e-mail subscription, unplugged his landline and removed the battery from his mobile. For the simple reason, that Wolfgang Schaeuble loves the IMF’s 3.6 billion euro contingency measures and would be delighted to see Greeks vote today for each one of them, but he is deaf when it comes to Deaf Relief.
Another red herring. One needs to look at this in terms of the overall long-term strategy put in place by two parties (the IMF and the Europeans) which, despite appearances to the contrary, have acted largely in concert to promote almost identical interests (or does one forgot how easily DSK flaunted IMF policies in order to support the EC who acted to bail out French and German banks by indirectly funding them through the charade of bailing out Greece).
The fact of the matter is that Greece has agreed to measures that correspond to 3.5% of primary surplus plus contingency measures of another 2%. I don’t see anyone saying, let’s go back and recalculate the measures so that what we are asking the Greeks to do actually corresponds to 1.5% of primary surplus. No the 3.5% is a given now. What the IMF is now saying is that “talks” in the future should include debt relief. That’s like saying – “I promise we will talk later about think I might agree to later, but you need to deliver now.”
For me Lagarde is quite clear. Her letter says: “We do not believe that it will be possible to reach a 3.5 per cent of GDP primary surplus by relying on hiking already high taxes levied on a narrow base, cutting excessively discretionary spending, and counting one-off measures as has been proposed in recent weeks.” If she was really interested in giving debt relief to Greece, she could have ended that sentence after the first part: “We do not believe that it will be possible to reach a 3.5 per cent of GDP primary surplus.” By not doing so, she actually is saying that it IS possible to reach 3.5 of GDP surplus but NOT by using “high taxes levied on a narrow base, cutting excessively discretionary spending, and counting one-off measures as has been proposed in recent weeks.” What does that leave? The usual BS the IMF has been pushing around the world for decades – structural adjustments. So the EC got their piece of flesh from Greece, now the IMF will demand theirs. And every one will claim that they are doing it in the best interest of Greece (and I say “Greece” and not “the Greeks” because no one cares about the actual people who live in Greece – we just talk about this nebulous thing called “Greece.”
Spot on. Excellent.
Well said!
Sounds more reasonable than anything we have heard from Brussels or Berlin. Can anybody explain to me, why Tsipras & Co are fighting the IMF with jaws and claws?
because they want to be friends with Schaeuble
Gaby please read Tintin’s comment closely. The answer is there. The IMF is NOT more reasonable.
Already voted “automatic adjustment measures” are “contingency austerity measures”, not?
1 – In today’s world, the International monetary Fund is a failed banking venture.
2 – Ms Christine Lagarde really ought to be in prison for crimes committed – so what happened – is everyone on holidays.